MM Zambia Limited v. Zambia Revenue Authority

MM Zambia Limited v. Zambia Revenue AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... (2014/HP/0100) in the High Court for Zambia, Holden at Lusaka, before the Honourable Mr. Justice C.F.R. Mchenga S.C.

The matter was an urgent judicial review on the grounds of illegality and unreasonableness sought by the Applicant (MM) against the Respondent (ZRA) seeking to overturn the ZRA’s decision to refuse to allow MM to export about USD$55m moveable mining equipment to a new project in South Africa, until MM had paid the assessed tax due to the ZRA.  MM had offered to pay USD$4m in cash with a bank guarantee of USD$12m to secure any debt due to the ZRA pending the finalisation of the ongoing tax auditA Tax Audit is a comprehensive review or examination conducted by a government’s tax authority. The primary objective of a tax audit is to verify the accuracy of a taxpayer's financial records, tax returns, and overall tax compliance. This process ensures that the reported income, expenses, and deductions align with the applicable tax laws and regulations. Tax audits serve as... and any future objection and appeal process. Both parties acknowledged before the judge that the tax liabilityTax liability represents the total amount of tax owed by an individual or business to a tax authority, whether local, national, or international. This obligation arises through various forms of income, profits, or transactions subject to taxation laws and regulations. Understanding tax liability is essential for compliance and efficient financial management for corporations and individuals. It influences how businesses structure... would not exceed USD$16m, the approximate tax due to the ZRA after its second revised assessment reducing the assessment down from an initial assessment of an approximate USD$120m.

It was argued by MM’s legal representatives that the ZRA’s decision to block the removal of its moveable mining assets to a new project in South Africa was illegal as there was no basis for the refusal under the law.  MM was allowed by sections 47, 48 and 49 of the Customs and Excise Act to export the mining equipment out of Zambia.  It was also submitted that there was no provision under the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act that allowed the ZRA to place restrictions on moving the mining equipment.   It was also argued by MM’s legal representatives that sections 79, 79A and 79B of the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act made adequate provisions for legal means for the ZRA to recover the assessed taxes. None of these provisions had been envoked by the ZRA.  The same arguments were raised in respect of sections 22, 23 and 26 of the VAT Act.

The ZRA argued that when an assessment is raised under section 77(4) of the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act payment is due on the day the assessment is made.  Furthermore, the modes of recovery of taxes cited by MM for the recovery of the assessed tax was not the only way monies that are due can be recovered.  They argued that they had not acted outside the law.   ZRA argued that at the time they made the decision to stop MM from exporting the mining equipment, MM had made no effort to settle the tax amount due.  To secure the tax revenueTax Revenue is the income collected by governments through various taxes imposed on individuals, corporations, and transactions. It is a primary source of funding for public expenditures, including infrastructure, healthcare, education, and social services. Tax revenue can come from different types of taxes, such as income tax, corporate tax, value-added tax (VAT), excise duties, and customs tariffs. The level and... due to the Government, the ZRA refused to allow the mining equipment to leave Zambia, as MM was winding up its operations in Zambia.  This being the motivation of the actions of the ZRA, it couldn’t be said to be unreasonable.

NOTE: It should be noted MM is a Zambian Company that was not winding down its operation in Zambia.  It had successfully participated in another mining project in South Africa.

The Court held that on the evidence before it, it found that ZRA’s decision to stop MM from exporting the mining equipment was not based on the express tax payment execution provisions in the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act and the VAT Act.  The court also found that the ZRA had not seized the mining equipment, so the Zambia Constitution guarantee against arbitrary seizing of property did not apply.

The Court found that the latest assessment was a final assessment and the tax was due and payable by MM, despite the ongoing audit and negotiations.

The Court found that the express collection procedures in the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act and the VAT Act are not the only enforcement options available to the ZRA.  It sets them out as options.

The Court found that the ZRA neither acted illegally or unreasonably, despite MM offering payment and security for payment of the ‘final’ tax assessmentA tax assessment is a formal determination made by a tax authority to calculate the amount of tax an individual or entity owes. It is a comprehensive evaluation based on financial records, declared income, expenses, deductions, and any applicable tax laws or regulations. Tax assessments may arise from routine self-assessments by taxpayers, or they may be conducted by revenue authorities....

The court ordered in favour of the ZRA.

COMMENTARY

Here the question of the rule of law becomes prevalent.  It appears the court accepted that the ZRA had inherent powers not expressly set out in legislation.

It is remarkable that the Court has in effect accepted and recognised that the ZRA can act outside express legislated powers.  This is clearly contrary to the rule of law and an act by the Court to extend the powers of the ZRA beyond specific legislated provisions.  It is no wonder Zambia ranks number 77 on the world-wide rule of law rankings.

A full copy of the redacted judgment is available from daniel@taxriskmanagement.com.

Dr. Daniel N. Erasmus Esq. BA (Wits) Bproc (UNISA) H Dip Tax LawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... (Wits) Ph.D law (KwaZulu-Natal), is a practising international tax attorney, www.TaxRiskManagement.com, and adjunct Professor of International Tax LawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... at Thomas Jefferson School of Law, San Diego, CA, USA and it’s Africa partner http://www.IITF.net.